Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Credit policies have been increasingly used by many emerging economies to support economic activity during downturns, more recently in response to the COVID-19 pandemic. Macroeconomic effects of credit expansions are well studied, but less is known about how they vary depending on their drivers. Drawing on the Turkish experience, we contribute to the literature by identifying credit supply shocks driven by domestic factors, including credit policies, while controlling for the effects of global factors. According to our vector autoregression (VAR) estimations, domestically driven credit expansions are accompanied by a depreciated currency and higher inflation, limiting the scope for accommodative monetary policy and restricting the growth impact. We show that shocks that lead to currency appreciation, which indirectly captures capital inflows, are also important drivers of credit expansions but with different macroeconomic effects: stronger currency leads to lower inflation; hence, monetary policy accommodates the credit expansion, leading to a larger and longer-lived GDP response.